Japan Display Gets Frosty Reception

Japan Display opened well below its premarket price in a frosty reception for the initial public offering of the world’s biggest maker of smartphone and tablet displays.

Bloomberg News

Japan Display Inc., the world’s biggest maker of smartphone and tablet displays for the likes of Apple Inc. and Google Inc., received a very frosty market reception Wednesday, with the issue opening 14.5% lower than its premarket price.

In an initial public offering valued at $3.1 billion, Japan Display opened at ¥769 ($7.58) in trading on the Tokyo Stock Exchange, well below its premarket price of ¥900. The issue then weakened to a low of ¥706 in early morning trading, while the Nikkei Stock Average rose 0.1%. This issue was changing hands at ¥756 around 0145 GMT.

“A disaster, no doubt,” said Lorne Steinberg, CEO of Montreal-based Lorne Steinberg Wealth Management. “The deal must have been either badly mispriced or the investor base was misjudged. In North America, dealers routinely support IPOs so that this type of opening performance could only happen if the entire market was also going suddenly bad at the same time.”

Still, from a valuation perspective, the sharp fall in share price may warrant a closer look, he added.

“We normally don’t pick up new IPO stocks, but if there is good value there, we could consider it,” he said.

The poor performance shows the difficulties of digesting big IPOs like Japan Display after the market turbulence of recent weeks. From March 10 when Japan Display priced its IPO at ¥900–the lowest in an initial range up to ¥1,100–the Nikkei index lost 4.7% up to the end of trade Tuesday.

“We sold our shares on the open. The selling pressure was too great,” said Chris McGuire, CEO/CIO of Chicago-based hedge fund Phalanx Capital Management, which owned a small portion of the IPO shares. At ¥800, the ratio of the company’s enterprise value to earnings is at 3 times and the price to earnings ratio is 10.9, he calculates.

“Theoretically, at ¥729, it seems like there is some value. That said, it may take a couple of days for the selling to subside. But the steep price fall is extremely disappointing and shows that the deal was overpriced at issue,” he added.

On Tuesday, Hitachi Maxell Ltd., a maker of lithium ion batteries, projectors and recording tape for industrial purposes, received a tepid market reception for its IPO worth $750 million. After opening 4.8% below the premarket price, the issue extended its losses, closing down 14% at ¥1,790. The issue was up 2.0% at ¥1,825 in early Wednesday morning trading.

The Hitachi Maxell issue was the fifth IPO on the Tokyo bourse this year and the first among them whose IPO price opened lower than the premarket price.